ENERGY SHOCK: A time bomb is ticking

“Greece – the country most likely to leave the euro block – accounts for just 0.5 percent of global oil demand, so the direct effects of a deeper recession there would not be large,” says NBK’s Kaye. “Europe as a whole, however, accounts for a much larger 16 percent. Moreover, there are signs of economic weakness spreading to Asia, which accounts for up to one-third of global oil demand and more than 80 percent of its recent growth.”

The ensuing ticking time bomb in the world energy market has also has resulted in a flight to safety like the American dol­lar. The dollar climbed by four percent on a trade-weighted basis in May, and by seven percent against the Euro, according to Kaye. “This has pressured the prices of dollar-denominated commodities, includ­ing gold and base metals. Nevertheless, exchange rate movements by themselves seem to explain no more than one-quar­ter of the recent decline in oil prices,” he says.

True, the world remains a worried and unsettled place. Will oil prices rise or fall and how will the actions of rogue governments and their sworn Western enemies affect energy options for the average worker? With all of this uncertainty, there could be some fac­tors which can weigh on the side of those hoping for a more stable future. Says NBK’s Kaye: “One reason is that temporary factors – including unseason­ably warm weather in the OECD – may have exacerbated recent weakness in demand. Another is the potential for a meaningful cutback in OPEC pro­duction. Indeed, one interpretation of recent OPEC production strengths is that the organization is looking to build stock levels to guard against the possible loss of Iranian crude once sanctions begin to bite in July.”